Tax cases

Garden leave

The taxpayer received a termination letter dated 24 September 2001, and had to hand in her pass, mobile telephone and laptop on the same day. The Revenue argued that her contract expired three months later, and that she was only required to take garden leave from 24 September. The letter said that the appellant was terminated 'with effect from today', i.e. 24 September, but went on to say that her pay in lieu of notice, or her normal monthly salary, would be paid in the normal way through payroll. The letter also said that she was not required to attend the office, but had to be available for work. She was also required to abide by the confidentiality clause. Her stock option plan was stopped and refunded in October, but she was paid holiday pay until December.

The Commissioner held that the termination referred to the appellant's position as vice president, and that a reasonable person would have understood that the three months notice had been given. The contract had not been terminated immediately. Had that been the case, the rest of the letter would have been pointless. The fact that she was being paid holiday pay was also an indication that her contract was in force until December. The company was able to put her on garden leave, according to her contract, and it was a discretionary right of her employer to require her to work at other locations.

The appellant had signed the termination letter, thus agreeing to the garden leave, and the payments she received from October to December were not in breach of her contract. The payments were taxable.

The appeal was dismissed.

(Redundant employee v McNally (SpC 440).)

Single supply

The taxpayer was a partnership of general medical practitioners serving urban and rural communities. Under Regulation 20 of the National Health Service (Pharmaceutical Services) Regulations 1992, doctors have the right and duty to provide pharmaceutical services to patients who do not have access to a nearby pharmacy and therefore have difficulty in obtaining prescribed drugs, and the doctors in the partnership did so provide.

Customs argued that a drug provided and personally administered by a doctor was part of a single supply of medical services and was therefore an exempt supply, while the doctors argued that it was a taxable supply.

On appeal, both the tribunal and the High Court agreed with Customs. The partnership then appealed to the Court of Appeal, which found in favour of the doctors, so Customs appealed.

The House of Lords ruled that there was a single supply of services and therefore the doctors were not entitled to recover input tax on personally administered supplies of drugs.

Customs' appeal was allowed.

(Dr Beynon and partners v CCE, House of Lords, 25 November 2004.)

No tax due

The taxpayer was employed by a local authority. Along with some other employees of the authority, the taxpayer was entitled to receive an essential car user allowance in respect of having to use his car for business purposes. In 1997, the authority scrapped the allowance for employees who drove less than 3,000 miles a year, of which the taxpayer was one. The employees were asked for their formal agreement to the removal of the allowance. Several employees, including the taxpayer, did not agree. Their employment contracts were therefore terminated, and they were immediately re-employed on new contracts which stated that the essential car user allowance would be paid only to employees who drove over 3,000 business miles a year.

The taxpayer claimed unfair dismissal. The tribunal agreed that he had been unfairly dismissed, and that the employer had breached Trade Union and Labour Relations (Consolidation) Act 1992, s 188. Under a new agreement, the authority reinstated the employee's right to receive the allowance, and made a payment for the allowance lost between the date of termination and reinstatement.

The taxpayer received over £5,000 under the agreement, and the Revenue amended his self assessment to include the amount. The taxpayer's appeal to the General Commissioners was allowed, so the Revenue appealed to the High Court. The judge dismissed the appeal, saying that the payment fell within TA 1988, s 148, as not otherwise chargeable to tax and as received in connection with the termination of his employment. The Revenue appealed, claiming that the payment was a taxable benefit under TA 1988, s 154, or that it was taxable under s 19 as an emolument of the taxpayer's employment.

Lord Justice Peter Gibson ruled that the payment was not an emolument from the taxpayer's employment. It was not enough that he would not have received it had he not been an employee. It was not a payment for past services, nor in return for acting as an employee, nor as an inducement to enter into employment. It was rather paid to compensate the taxpayer for the unfair dismissal.

Furthermore, the payment was not a benefit within s 154. Finally, although the payment fell within the sweeping provisions of s 148, as it was less than £30,000, no tax was due.

The Revenue's appeal was dismissed.

(Wilson v Clayton, Court of Appeal, 7 December 2004.)

Costs are fair

The taxpayer company traded as a Chinese restaurant and takeaway. Customs notified the company of assessments to tax in connection with undeclared output tax. The company appealed against the assessments on the grounds that they were too high, and all VAT returns were in order.

The tribunal found that Customs' evidence was partly unsatisfactory, but also that the company had suppressed some bills. The appeal was allowed in part and the assessment reduced. No direction was made with regard to costs.

The company appealed with regard to the costs, saying that as the assessment had been reduced by half, so should it have been awarded half its costs.

In the High Court, it was said that the costs decision was at the discretion of the tribunal. With regard to the instant case, the decision it had made was entirely rational.

The taxpayer's appeal failed.

(Summer Palace v CCE, Chancery Division, 1 December 2004.)

Illegal amendment?

The taxpayer amended her return for the year to 5 April 2000. The Revenue subsequently made another amendment, effectively cancelling out the taxpayer's amendment, following the closure of an enquiry into the taxpayer's amendment.

The amendments concerned the proper rate of relief on a capital gain realised by the taxpayer on the sale of one share of a close company. The disposal took place in May 1999, and she made a net gain of £1,229,790. The taxpayer appealed against the Inspector's amendment on the grounds that:

The Special Commissioner said that the enquiry was not time barred. The return had been filed on 31 January 2001, and the amendment made on 9 October 2001 in accordance with TMA 1970, s 9ZA. Under s 9A(2)(c), when a return was amended under s 9ZA, the Revenue could enquire 'up to and including the quarter day next following the first anniversary of the day in which the amendment was made'. The enquiry, which was specifically into the amendment, was made within a year of the amendment, so it was in time.

Next the Commissioner considered the taper relief provisions in TCGA 1992, s 2A. The amount of taper relief was based on the number of years in the qualifying holding period. She agreed with the Revenue that the holding period was two years, and that there was no basis for reducing the amount of gain chargeable to 25%, as claimed by the taxpayer, rather than the 85% given by the Inspector in his amendment to the amended return. The Inspector's amendment restored the calculation to how it was originally in the return, and was correct in law.

Finally, with regard to the joint amendment issue, the Commissioner found that the Inspector had agreed to the amendment in that he understood it and its consequences. He did not use the formal terms of TMA 1970, s 9A, nor did he consider that he was settling a disagreement. Furthermore, no legislative power existed to allow a return to be jointly amended.

The taxpayer's appeal was dismissed.

(O'Sullivan v Philip (SpC 437).)

Issue: 3988 / Categories: